Globally, e-commerce is hurting some bricks-and-mortar stores while transforming the retail property landscape.
Online shopping is becoming more seamless and convenient, forcing physical stores to evolve to survive.
Online retailers are rapidly expanding their retail market share, with Amazon and Alibaba achieving formidable online sales figures, making it impossible to overlook them. In the UK alone, online sales are expected to account for 18% of total retail sales in 2018.
According to the Thai Electronic Transactions Development Agency (ETDA), the Thai e-commerce market value is expected to reach more than 3 trillion baht this year which is about 1% of total retail sales, but it is still expected to grow rapidly following the pattern in the rest of the world.
Despite the growth in the e-commerce market and low consumer spending power, Thailand's retail property supply has continued to grow.
According to CBRE Research, there is more than 7.6 million square metres of existing modern retail space in Bangkok and over 1.2 million sq m is under construction or being planned, including IconSiam and One Bangkok. In 2018 alone, there will be over 300,000 sq m of new retail space, three times the space in 2017.
The overall demand for retail space is flat, with an average occupancy rate of 93.7%. Hence, it has been difficult for many retail landlords to raise rents.
Some retail formats have struggled more than others. Many first-time developers built community malls and are now discovering that managing a retail centre and retaining tenants are much harder than they originally expected. This is not because of e-commerce but due to the inherently difficult challenge of creating a retail destination that will attract sufficient traffic for at least 10 hours a day, seven days a week. Tenants need this level of traffic to pay the rent.
While all retail brands are all trying to penetrate the e-commerce market, some online retailers are embracing the reverse online to offline (O2O) strategy and expanding with physical stores. Alibaba has a physical supermarket format in China called Hema and Amazon purchased the upmarket Wholefoods grocery store chain in the US.
In Bangkok, the online fashion retailer, Pomelo Fashion, opened some physical stores to reach new customers and boost brand awareness. Their click-and-collect model allows customers to order items online and try them on in the stores before purchasing.
This proves that the physical store is not dead, but retailers need to integrate digitalised shopping experiences in-store to create a seamless "omni-channel" experience. Leveraging exclusivity in-store and offering products or services that cannot be replicated online are crucial.
Sales of electronics, fashion apparel and cosmetics are shifting online. This means food and beverages retailers are key anchors but retail landlords cannot fill a shopping centre only with restaurants. There is a limit on how much rent a restaurant can pay which is generally less than that of a high-end fashion retailer.
The challenge for retail landlords is to maintain the attractiveness of their shopping centres through tenant mix and promotion and by trying to create a constantly changing, unique experience, for example, through the use of pop-up stores. This challenge is going to grow with the planned new retail supply both for new and existing shopping centres.
Some retail developers are looking at new formats. Both Central and Siam Piwat have announced plans for premium outlet malls similar to those in the UK and Europe.
For retail properties to survive, their landlords need to foster communities, personalise customer interactions and embrace technology in-store to create a lasting engagement that online shopping cannot replace. Retailers must adapt or die in this digital age.
Pichamon Chomanan is an analyst at Research and Consulting, CBRE Thailand. She can be reached at bangkok@cbre.co.th Facebook: CBREThailand LinkedIn: CBRE Thailand Line@: CBRE Thailand Twitter: @CBREThailand website: www.cbre.co.th